Why Credit Suisse Is Defending Micron

Micron Technology Inc. (NASDAQ: MU) has its most recently quarterly earnings report scheduled for the end of June, but ahead of these results one key analyst decided to give its two cents on the DRAM giant. While Credit Suisse expects the company to post solid upside to both May’s quarterly results and the outlook for August, the firm sees Micron and memory as one of the more structurally undervalued companies/sectors in all of semiconductors.

In a sense, Credit Suisse is coming to defend Micron after the stock dropped about 6% in last Friday’s session. Since then, the stock has risen 3%.

Credit Suisse reiterated an Outperform rating with a $40 price target, versus a $31.54 prior closing price. While memory is still cyclical, the firm is arguing “stronger-for-longer” for three reasons:

Not enough time has passed for a cycle-ending supply response.

The cost of capacity is increasing structurally.

New applications (AI/DL, AD, SSDs) are supporting diversification and a demand-pull not seen since 1994-95.

Credit Suisse’s top-down view is supported by price checks that suggest stability/upside to DRAM through 2017 and more modest than originally expected NAND declines in the second half of 2017. Lastly, idiosyncratic drivers should allow for Micron to narrow the “cost-GAP” with peers and for margin expansion even with modest average selling price declines.

Even if one is unwilling to subscribe to the structurally improving narrative for memory, cyclical analysis and recent supply chain commentary would support a better second half outlook than expected coming into 2017.

As a result, the firm expects the May quarter earnings per share EPS to be least $1.60, which is 10 cents above the street estimate. Credit Suisse also expects the August quarter EPS to be $1.89, above the consensus of $1.56. The firm is raising its calendar 2017 EPS estimate to $6.28 from $5.13 and its calendar 2018 EPS to $6.85 from $5.25. The consensus EPS estimates are $5.41 and $4.44 for calendar 2017 and 2018, respectively.

Shares of Micron were trading at $31.50 on Wednesday, with a consensus analyst price target of $38.34 and a 52-week range of $11.50 to $32.93.